Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. A process costing system
a. does not use a work in process account
b. has a separate work in process account for each product produced
c. uses only one work in process account
d. has a separate work in process account for each processing department
D. Costs are tracked for each processing department in a separate work in process account. The cost in the department is then divided by equivalent units to determine the cost per unit for that process. All products are the same so there is no need to track costs for each product.
2. A company uses a process costing system when
a. they have many steps in the production process
b. the product is mass produced
c. the product is manufactured as orders are received
d. production is always fully complete during the period
B. A process costing system is used when all products are the same and they are mass produced. A job costing system would be used for a. and c. Process costing uses equivalent units and all products do not have to be complete at the end of the period to get an average cost per unit.
3. A costing system that provides an average cost per unit for a particular period is
a. job costing
b. process costing
c. indirect costing
d. direct costing
B. Process costing provides an average cost per equivalent unit. Job costing provides the cost for each job and it is not an average. Indirect and direct are not costing systems.
4. Total equivalent units of production
a. is the number of whole units completed during the period
b. does not include beginning inventory units
c. does not include ending inventory units that are not complete
d. includes the units started and completed during the period
D. The only correct answer is d. Units started and completed are included along with beginning and ending inventory in total equivalent units. It is not the number of whole units complete because it includes units that are partially complete stated in terms of equivalent units.
5. The justification accountant’s use for valuing inventory at an average cost using the weighted average method of process costing is that
a. all units are the same
b. beginning inventory cost per unit is always the same as costs added
this period per unit
c. each unit costs the same to make
d. none of the above
A. The units are the same, therefore the assumption is that the cost to make should be the same for all units in the period since they are manufactured in a homogenous process. Beginning inventory costs are often different than current period costs because costs fluctuate over time and therefore each unit does not actually cost the same to make and an average is used when using the weighted average method.
6. A cost reconciliation report provides
a. the value of completed goods during the period only
b. the value of work in process at the end of the period and the value of completed goods during the period
c. a detail report of what types of costs were incurred during the period
d. a report of how many completed units only were produced during the period
B. A cost reconciliation report gives the value of work in process at the end of the period and finished goods completed during the period. The report will normally give material and conversion equivalent units and cost per equivalent unit and will not provide the detail of what types of material and conversion were incurred.
Do you understand how to apply process costing?
7. Using the weighted average method, total equivalent units would be equal to
a. all units completed
b. units completed plus equivalent units in ending inventory
c. units completed plus equivalent units in beginning inventory
d. units started and completed plus units in ending inventory
B. All beginning units and started and completed units are considered to be completed under the weighted average method, therefore equivalent units is equal to quantity units.
8. Previous period costs are treated differently than current period costs under
a. FIFO method
b. Weighted average method
c. both the FIFO and weighted average method
d. all process costing methods
A. The FIFO method does not include beginning inventory costs when calculating cost per equivalent unit. The weighted average method includes beginning costs and costs added when computing cost per equivalent unit.
9. The weighted average method
a. uses a standard cost to assign costs to products
b. assigns only this period’s cost to work in process
c. does not consider ending work in process when assigning costs
d. includes beginning costs when assigning costs to inventory
D. The weighted average method includes beginning costs when computing the cost per equivalent unit and it includes the work done associated with those units.
10. A formula for computing cost per unit in a process costing system is
a. completed whole units divided by costs added this period
b. completed whole units divided by costs added this period plus beginning inventory costs
c. costs divided by equivalent units this period
d. costs divided by equivalent from beginning inventory
C. Under the FIFO method, c. is correct. a. and b. are incorrect because it is not whole units, it is equivalent units. Using weighted-average it would be costs from beginning inventory plus costs added this period. Beginning inventory cost only is never correct.
11. When calculating a cost per unit using weighted average process costing, after calculating equivalent units, you must first
a. divide the current period production cost by the equivalent units
b. divide the beginning period production cost by beginning equivalent units
c. add beginning costs to the costs added during this period
d. divide the current period costs by equivalent units
C. The total costs must be determined, which, under weighted average includes both beginning inventory costs and costs added this period. This is then used to calculate cost per equivalent unit.
12. The difference in equivalent units using FIFO and using weighted average is
a. work done in the previous period
b. work in beginning inventory completed this period
c. work in ending inventory
d. work not yet completed
A. FIFO does not include work done in the previous period and weighted average does include work done in the previous period when it counts it all at 100%. Started and completed and ending work in process is treated the same under both methods.
13. Beginning units in process plus units started is always equal to
a. started and completed plus ending units in process
b. started and completed plus beginning units in process
c. beginning units in process plus started and completed plus ending units still in process
d. beginning units plus what was transferred in less ending units in process
C. The only correct answer is c. The top part of the schedule must be equal to all the parts in the bottom of the schedule. What goes in must come out and by the end of the period all units must come out as either finished or still in process. Beginning inventory is completed, as it is considered to be finished first
14. When preparing a cost reconciliation report you must always
a. take the cost per unit times the number of equivalent units
b. divide the cost per unit by the number of equivalent units
c. add raw materials and conversion costs to beginning inventory
d. value completed units only
A. The cost reconciliation report shows the value of work in process and finished goods, which is determined for both as equivalent units x cost per equivalent unit – for each cost type, material, labor, O/H or conversion.
15. Finished goods consist of
a. ending work in process plus started and completed
b. total equivalent units
c. total units started plus beginning inventory
d. beginning work in process plus started and completed
D. The units that go to finished goods are units completed during the period. Beginning work in process is completed first and started and completed are also completed.